Published: April 4, 2013 at 10:28 am

Oil spills are nasty. It’s hard to defend a company that is responsible for causing massive amounts of pollution or environmental damage — whether as a result of carelessness or just overall bad luck. As long as the world runs on fossil fuels, there will most likely be oil spills.

Arkansas gets oiled…

After the Pegasus Pipeline, which is capable of transporting over 90,000 barrels per day of crude from Illinois to Texas, ruptured in Arkansas, Exxon Mobile Corporation (NYSE:XOM) decided to shut it down and begin clean-up. According to Reuters:

“Exxon Mobile Corporation (NYSE:XOM) also had no specific estimate of how much crude oil had spilled, but the company said 12,000 barrels of oil and water had been recovered – up from 4,500 barrels on Saturday. The company did not say how much of the total was oil and how much was water.”

Opponents of the Keystone Pipeline are already using the spill as evidence of the negative consequences of developing and transporting Canadian oil sands, often pointing out that the “heavier” crude is more corrosive and damaging to pipelines.

Utah isn’t happy…

The second largest U.S. Oil company after Exxon Mobile Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), also faces scrutiny. After a pipeline ruptured last week at Willard Bay State Park in Utah, diesel fuels began spilling into the marshes. This was the third pipeline leak in the last three years attributed to Chevron Corporation (NYSE:CVX) in the state of Utah, and Governor Gary Herbert sounds fed up. Herbert called the spill “unacceptable” and elaborated further by stating that:

“With interstate pipelines, that’s a federal responsibility of the Pipeline Hazardous Material Public Safety Administration — which is a mouthful to say — but that’s their responsibility, and obviously they’ve not done a very good job of overseeing the pipes that travel between our states… This is just not an acceptable situation. We will make sure that Chevron Corporation (NYSE:CVX) does what it needs to do to clean this mess up.”

Blame the pipelines?

A spokeswoman for the Pipeline Hazardous Material Public Safety Administration came out saying that, “We are investigating the cause of the failure and we will carefully monitor the activities of Chevron Pipe Line Co. as we move forward with our enforcement efforts.” The Administration also put the pressure on Chevron Corporation (NYSE:CVX) to ensure safety before starting the pipeline back up.

As for Exxon Mobile Corporation (NYSE:XOM), their pipeline that ruptured in Arkansas was built in the late 1940s, which has provided the grounds for some, like Utah’s governor, to blame infrastructure for spills.

According to Bloomberg, Larry Farnsworth, a spokesman for Republican Representative Lee Terry of Nebraska, used the spill to point out that the U.S. needs to upgrade its existing infrastructure, going on further to explain that the Keystone pipeline would be different. He stated that Keystone would be the “most modern and highly engineered pipeline that can be built,” obviously insinuating that spills don’t necessarily need to happen if safety is held to higher standards.

Another spill in March…

The recent oil spill by ExxonMobil on the March 29 pales in comparison to the more notorious spill attributed to Exxon Mobile Corporation (NYSE:XOM) that occurred on March 24, 1989. The Valdez Oil spill generated enough “black gold” to fill 125 Olympic-sized swimming pools, affecting 1,300 miles of Alaskan coastline. This caused the company to become almost obsessed with safety. A good read on the company’s culture after the spill is described by Steve Coll’s book, Private Empire: Exxon Mobile Corporation (NYSE:XOM) and American Power.

Exxon’s stock at the time definitely escaped unscathed when it fell around 4% – at least in comparison to the share price of BP plc (ADR) (NYSE:BP), which immediately cratered over 13% after their major Gulf Coast oil spill.

Pavel Molchanov, energy analyst with Raymond James, explained shortly after the spill that, ”For any given stock the response in the market for this type of news flow tends to be more sharp than it was 20 years ago,” before stating that (in reference to BP plc (ADR) (NYSE:BP)):

“They’re in many ways a model for how a company needs to act in a crisis management mode — as opposed to Exxon after Valdez.”

So basically, BP plc (ADR) (NYSE:BP)’s spill was much more “out there” and transparent than Exxon’s, as information flows more freely to the public.

History tends to repeat itself…

Lackadaisical standards and safety practices are the worst enemies for everyone when it comes to oil, especially in relation to Offshore drilling. Exxon’s Valdez spill was largely a result of cost-cutting and loosely-regulated safety standards.

Exxon adapted to their mistakes and increased their safety standards tremendously as a necessary reaction to their spill. BP plc (ADR) (NYSE:BP)’s more recent spill, like Exxon in the 80′s, was due largely to carelessness. BP plc (ADR) (NYSE:BP) seems to have learned their lesson, but will most likely remain hated for many years to come, after taking the “most hated” crown away from Exxon.

So does BP make a good investment?

BP plc (ADR) (NYSE:BP), being under more scrutiny than any other integrated oil company, will most likely push safety above all else, as Exxon initially did after their Valdez blunder. BP is a compelling buy at its currently cheap levels. The company trades at around 11 times earnings, carrying a forward P/E of just about 8. The unloved oil company also pays a dividend that yields twice that of Exxon’s, and well above that of competitor Chevron Corporation (NYSE:CVX)’s. BP’s dividend yields just over 5%.

The company does, however, still carry some risk related to its Gulf blunder, most recently attempting to halt settlement payments. Still, the company makes for an attractive value play, and will pay you much better than most oil companies. As long as the world insists on using fossil fuels as a major and vital energy source, as well as oil-based products such as plastics, we will need companies like BP and Exxon.

BP is still in recovery mode, but should emerge as a stricter and safer company when the dust settles, more so than its competitors, who don’t have one of the worst oil spills in U.S. history breathing down their immediate backs. Now looks like a good time to consider jumping into the stock.

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